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5 Examples of a Fixed Budget

 , updated on October 19, 2017
A fixed budget is a budget that is set to an amount. Unlike a flexible budget, it isn't based on variables such as revenue, volume of work or results. Teams with a fixed budget view the budget as a constraint and do what they can with their resources. This may encourage efficiency and productivity. However, a fixed budget may also result in missed opportunities or poor organizational performance if work volumes greatly exceed resources. The following are illustrative examples of a fixed budget.

Administration

Administrative functions such as accounting and human resources may have a fixed budget as they are somewhat isolated from the short term effects of business volumes.

Customer Support

A customer support team has a fixed budget for two shifts of 12 people and one shift of 4 people each day of the year. The firm has a product failure resulting in surging call volumes and has no pool of resources to respond to the increased volumes. As a result, wait times for customers peak to unreasonable levels.

Information Technology

Some firms assign a fixed budget to information technology functions. It is common for the pool of capital technology projects under consideration to far exceed this budget. As such, a fixed budget forces a firm to prioritize technology spend.

Sales

A sales team may be granted a fixed budget for salary and incentives. For example, incentives may be set at $2 million for a year with the money going mostly to the top 20% of the team in terms of results. In this way, incentives are capped in a year when a product is selling effortlessly. Incentives also do not decline when a recession or competitive pressures make sales harder to achieve.

Programs

It is common for programs in the public and non-profit sector to be allocated a fixed budget for a year. This may represent a significant constraint if the program is addressing a large scale problem with a relatively small budget.
Overview: Fixed Budget
Type
Definition
A budget that is set to an fixed amount.
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